We have written two previous blog posts on Valeant:
- July 24, 2015 - 'Royal Bank is no longer Canada's largest company'
- September 29, 2015 - 'Valeant Plummets'
From the time of our first post on July 24th, the company has lost over 75% of its market value and over $75 billion dollars of investor capital. Unfortunately, they are not in the clear. The Valeant balance sheet has looked the same since the July 24th blog – a very heavy debt load exists at the company, and debt is nearly 3 times revenue. Their business model is now threatened via potential regulation changes, and the cash-flow cannot be modeled; this kind of uncertainty makes it very difficult for a stock to rally. We wish them luck – we have never invested in this company, nor plan on doing so.
From the time of the first blog post, Valeant has dropped from $260 to $55. Royal Bank has since produced record earnings and a dividend increase. Its stock has not done too much to brag about, but there were no surprises – we like that.
RBC (white) vs. Valeant (green):
Common sense is everything; if a company has lower revenue than Royal Bank has net income, steer clear and wait for cooler heads to prevail.
Any questions, give us a call.
Chris, Rick, Steve
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.